Motorola Highlights Rising CDS/ Liquidity Disconnect on Earnings

The widening disparity between deteriorating liquidity and tightening CDS spreads is becoming more evident in numerous companies on the eve of their earnings updates, according to Fitch Solutions in its latest update on Global CDS Spreads/Liquidity Scores for companies scheduled to come out with earnings announcements in the coming week.

While spreads among companies such as Motorola and Honda Motor continue to tighten, uncertainty among both companies is increasingly evident in their liquidity scores, which have risen substantially.

"Increasing competition in a declining market has impacted Motorola's market leading position with sales already down significantly over last year," said Author and Managing Director Thomas Aubrey. "Honda is also feeling the broader effects of the auto sector troubles with their output and sales declining substantially."

Fitch says that Motorola's credit spreads have tightened over the last three months with the five-year point tightening from 300 basis points (bps) to 223bps, a decrease of 26%. Despite this tightening of spreads, liquidity on Motorola, increased from trading in the eighth percentile to the fourth percentile; its liquidity score increasing from 7.24 to 6.97 over the three-month period. The company has been hit hard by the shrinking handset business and a sharp pullback in consumer spending with Q1 results showing a GAAP net loss from continuing operations of $0.13 per share. Q1 09 Sales of Mobile devices, home & networks mobility and enterprise mobility solutions were down 45%, 16% and 11% respectively from the previous year.

On the web: Fitch Ratings

Posted to the site on 28th July 2009